London: Coal stockpiles at India’s ports fell slightly since mid-September to 11 million tonnes from 12 million, importers said, but weak cement sector demand and rail bottlenecks are likely to keep stock levels high, according to some of India’s biggest importers.
Until the unsold tonnage shrinks, which could take months, Indian buyers are unlikely to return to the spot market for large fresh purchases despite the growing coal supply crisis which is causing power shortages across the country .
India’s need for imported coal for power generation is structural and rapidly increasing but a lack of rail capacity to move it from ports to end-users is holding up both domestic supply and imports.
State-owned Coal India, the single largest coal miner in the world, is struggling to meet its supply commitments to power plants.
“Stockpiles across the country are now around 11 million tonnes, not much lower than last month,” one of India’s biggest trade importers said.
“If you’re a consumer you can buy cheaply ex-stocks at prices equivalent to less than $99 a tonne FOB Richards Bay, much lower than on the international market because people are struggling to sell what they have and must discount heavily,” he added.
“There are over 10 million tonnes of stocks lying at various ports in India due to some ports facing limited infrastructure,” an official at one of India’s biggest, new cape ports said.
Prompt FOB Richards Bay coal prices have been hovering at around $104-108 for the past two weeks.
The high stockpile levels, exacerbated by slow rail transportation, are encouraging end-users particularly in the private sector to hold out for lower prices because they know sellers are under pressure to move coal from the ports.
Rail slows trade
State utilities have already ramped up imports through large-scale tenders. Some states, such as Tamil Nadu, are now considering imports for the first time to make up for the domestic shortfall, although whatever they buy it seems end-users will have to grapple with the rail issue.
“India is forecast to need 100 million tonnes of imports this fiscal, up from 65 million last year but at 60-70 million tonnes of imports the country’s rail capacity is a failure,” the second major importer said.
“If there was adequate rail then I’d have no stocks at all at some ports rather than high stocks -- utilities would take it all,” he added.
“When a lot of iron ore is also being moved then even 50 million tonnes of coal imports are too much for the current system - it will take a couple of years for new lines to be built at least,” he added.
These utilities are likely to absorb the bulk of the unsold coal at ports and to haggle aggressively over price, traders said.
Several large state utilities including Maharashtra State Electricity and APGenco have tendered for double the quantity bought in the previous year.
Over 70% of India’s thermal coal imports are brought in by large traders who sell on to private and state end-users but numerous, smaller stock-and-sale traders supply the cement and sponge iron sectors from port stockpiles.
A slowdown in Indian economic growth has curbed demand for coal, especially among private sector cement makers although state utility demand has been booming because domestic supply has continued to fall short of expectations.
“The cement sector is working at only one-third of its peak capacity so they’re not buying and they’re very slow to pay,” another trader importer said.
Asia’s third-largest economy grew 7.7% in Q2 from a year earlier and is expected to grow at less than 8% in the current fiscal year as a steady rise in interest rates has crimped domestic demand.
In this environment, suppliers are fighting to undercut each other’s prices for ex-stocks sales.
“It is becoming very aggressive now but a lot of the unsold stocks have been brought in by new players who want to get into the market here and they’re the ones who are struggling the most,” another major trade importer said.